Question

Aggregate planning is described as a process of developing, analyzing, and maintaining a schedule of the overall operations for a supply chain. Other evaluation tools and planning technique are describe in this week's readings. Is aggregate planning the best approach to use for evaluating supply chain performance, or is another one better?

Answer 1

With the help of supply chain management the flow of raw materials, products and information has become a focal issue in modern manufacturing and service systems. Supply chain management requires effective use of assets and information that has far reaching implications beyond satisfaction of customer demand, flow of goods, services or capital. Aggregate planning is a fundamental decision model in supply chain management which refers to the determination of production, inventory, capacity and labour usage levels in the medium term. Today supply chain management has become one of the most important core functions of companies in manufacturing and service sectors. Supply chain management considers all the stages from raw material procurement to consumption by the end users in fulfilling the demand for a certain product or service. In the simplest terms, whenever there is a demand either for a product or a service and supply to fulfill this demand, a supply chain emerges.

The standard aggregate planning problem aims to determine the production levels, inventory kept in the supply chain, hiring and firing employees, overtime production, backorders and demand satisfaction levels with the objective of having the minimum cost or maximum profit.

In aggregate planning, the decision maker first estimates aggregate cost components including labour costs, capacity changing costs, production costs, inventory holding costs, stock-out and backlogging costs, and subcontracting costs. The estimation of these costs is not an easy task but can be done through aggregate planning. The decision maker not only reveals information on production, inventory, and capacity levels but also on the required capital, machinery, and warehouse space, sourcing decisions and supplier purchase level, customer service levels, and product pricing by deducing the aggregate plan.

Aggregate planning is a fundamental step in the entire supply chain and operations management. There is methodological approach to incorporate sustainability considerations in the aggregate planning problem. The standard model is enhanced with realistic considerations including the learning curve of new employees and smoothing limits on the hiring and firing of employees in an organisation. Moreover, the aggregate planning model is revised to incorporate environmental and social effects to conduct a triple bottom line accounting analysis of sustainability and the solutions obtained with the model are analyzed to obtain insights. The analysis shows how environmental and social criteria can be appended to traditional cost accounting in order to address sustainability in supply chain and operations management based on the aggregate planning problem.